The US Court of Appeals for the Ninth Circuit has issued a significant decision affirming the certification of the largest class action since the adoption of Federal Rule of Civil Procedure 23. In Dukes v. Wal-Mart Stores, Inc., Nos. 04-16688 and 04-16720, a divided en banc court ruled, 6 to 5, that the district court did not abuse its discretion in certifying a class of as many as 1.5 million female employees who worked in Wal-Mart’s 3,400 stores at any time after December 1998 for gender discrimination claims based on pay.
In a majority opinion by Judge Hawkins, the Ninth Circuit ruled that the class action could proceed with respect to plaintiffs’ claims for back pay and injunctive and declaratory relief. The Ninth Circuit also remanded for the district court to consider whether a class could be certified with respect to plaintiffs’ claims for punitive damages. The Ninth Circuit affirmed the district court’s refusal to certify a class of employees who were allegedly denied promotions in violation of Title VII. The Ninth Circuit also excluded former employees from the class and remanded for the district court to consider whether a subclass or separate class of former employees would be appropriate. The majority’s lengthy opinion creates or deepens conflicts with other circuits on at least three key class certification issues:
- When claims for monetary relief predominate over claims for injunctive relief, such that a plaintiff cannot obtain certification under Rule 23(b)(2), which governs class actions for injunctive relief, in order to avoid the higher “predominance” and “superiority” requirements imposed by Rule 23(b)(3) on class actions for damages;
- Whether the use of “sample cases” is consistent with the defendant’s right to present affirmative defenses against each claim of discrimination at trial; and
- Whether the district court must resolve Daubert objections to the admissibility of experts used in support of class certification before ruling on the class certification motion.
In 2001, six plaintiffs brought a class action in a California federal district court alleging that Wal-Mart, the world’s largest private employer, had engaged in company-wide gender discrimination in violation of Title VII of the 1964 Civil Rights Act. The plaintiffs asserted that women employed in Wal-Mart stores around the country received less pay and fewer promotions than men in comparable positions. The plaintiffs sought injunctive and declaratory relief, back pay, and punitive damages on behalf of a proposed nationwide class.
The district court certified a class that encompassed the claims of up to 1.5 million female employees seeking injunctive and declaratory relief and back pay, and certified a separate class of the same employees seeking punitive damages. The district court declined to certify the claims of employees seeking back pay for allegedly unlawfully withheld promotions. Wal-Mart appealed the certification of both classes under Rule 23(f). After a panel of the Ninth Circuit affirmed, the Ninth Circuit granted en banc review.
The en banc Ninth Circuit affirmed the certification of the claims for injunctive and declaratory relief and back pay, and remanded the punitive-damages class for the district court to determine whether it may be certified under Rule 23(b)(2) or (b)(3). The Ninth Circuit also remanded the claims of former Wal-Mart employees so that the district court can determine whether to certify additional classes or subclasses under Rule 23(b)(3). In addition, the Ninth Circuit affirmed the district court’s refusal to certify claims for back pay related to allegedly withheld promotions. In the course of reaching these holdings, the court created or deepened a number of circuit splits.
Standard for Certifying Claims for Both Back Pay and Injunctive Relief Under Rule 23(b)(2)
To be certified, a class must meet all the requirements of Rule 23(a) and one of Rules 23(b)(1), (b)(2) or (b)(3). The district court had certified the class in this case under Rule 23(b)(2), which allows certification when “final injunctive relief or declaratory relief is appropriate respecting the class as a whole.” Class actions in which plaintiffs’ claims for monetary relief “predominate” over their claims for injunctive and declaratory relief, however, are not permissible under Rule 23(b)(2). They instead must be certified, if at all, under Rule 23(b)(3), which requires the plaintiff to establish that common issues predominate over individual ones and that a class action would be superior to other means for resolving the dispute.
In Dukes, the Ninth Circuit announced a new standard for determining when monetary relief predominates over injunctive relief such that the class may be certified under the more lenient Rule 23(b)(2) standard: “a class must seek only monetary damages that are not ‘superior [in] strength, influence, or authority’ to injunctive and declaratory relief.” The court directed consideration of four factors:
- “[W]hether the monetary relief sought determines the key procedures that will be used,”
- “[W]hether it introduces new and significant legal and factual issues,”
- “[W]hether it requires individualized hearings, and”
- “[W]hether its size and nature—as measured by recovery per class member—raise particular due process and manageability concerns.”
The Ninth Circuit concluded that claims for back pay under the circumstances of this case did not predominate over the requests for injunctive and declaratory relief, and then remanded for the district court to apply the new four-factor test to the claims for punitive damages.
The Ninth Circuit’s new standard creates a three-way circuit split. The Fifth Circuit (joined by the Sixth, Seventh, and Eleventh Circuits) holds that monetary relief predominates “unless it is incidental to requested injunctive or declaratory relief.” Allison v. Citgo Petroleum Group, 151 F.3d 402, 415 (5th Cir. 1998). By contrast, the Second Circuit determines whether monetary relief predominates by examining, among other things, whether “even in the absence of a possible monetary recovery, reasonable plaintiffs would bring the suit to obtain the injunctive or declaratory relief sought.” Robinson v. Metro-North Commuter R.R., 267 F.3d 147, 164 (2d Cir. 2001).
Due Processss and Manageability Concerns
The Ninth Circuit also affirmed the district court’s ruling that, although enormous, the class was nonetheless manageable for trial, and that certification did not violate Wal-Mart’s statutory and due process right to defend against each individual claim of discrimination. The Ninth Circuit first held that Title VII plaintiffs need only prove a pattern and practice of discriminatory conduct on a group-wide basis in order to qualify for prospective relief. The court then held that Wal-Mart’s right to present individual defenses would be protected by having the district court randomly select and try a small number of “sample cases,” and then discount the award distributed to the class by the percentage of meritless cases in the sample. The Ninth Circuit acknowledged that this approach would result in a windfall to some class members, but concluded that an employer that has been proven to have discriminated against a group must bear that risk.
In endorsing minitrials of “sample” cases in order to derive a formula for calculating back pay on a class-wide basis, the Ninth Circuit created a circuit split with the Fifth Circuit, which rejected that approach in Cimino v Raymark Indus. Inc., 151 F.3d 297, 319 (5th Cir. 1998). In a vigorous dissent, Judge Ikuta argued that the court’s sampling approach, or any other formula-based approach to administering back pay, is inapplicable under Title VII because of the defendant’s “statutory right to raise individual defenses in response to the request for back pay.” For instance, even after a finding of a class-wide pattern and practice of discrimination, an employer would be entitled to prove that a particular employee would have received the same level of pay in the absence of discrimination, or that the employee had failed to mitigate his or her damages. An individual class member’s right to due process may also be violated by sampling, as class members with meritorious claims would receive less relief than to which they are entitled. Moreover, because it is unclear how this sampling approach would work in practice, other due process or manageability issues will likely emerge.
Daubert ObObjections to Expert Testimony at the Classss Certification Stage
The Ninth Circuit created another circuit split in ruling that the district court had not abused its discretion in refusing to test the reliability of the methodology of an expert testifying in support of class certification. The plaintiffs had relied on a sociologist who concluded that Wal-Mart’s many store managers and other decision makers are vulnerable to gender stereotyping. The expert testimony was significant to upholding the class certification decision. Wal-Mart moved to strike the report under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), but the district court declined to hold a Daubert hearing and ultimately relied on the expert’s testimony in finding the existence of common questions. The Ninth Circuit affirmed in part because it was “not convinced” that “Daubert has exactly the same application at the class certification stage as it does to expert testimony relevant at trial.”
The Ninth Circuit’s decision allows the defendant the opportunity for a Daubert review at the merits stage, potentially striking the report and defeating the class discrimination claim on the merits. However, the Seventh Circuit recently reached the opposite conclusion in American Honda Motor Co. v. Allen, No. 09-8051 (7th Cir. Apr. 7, 2010), holding that district courts must fully adjudicate Daubert challenges to class certification experts before analyzing class certification itself. (for more information, see our earlier Alert at http://www.mayerbrown.com/publications/article.asp?id=8840&nid=6).
The Ninth Circuit’s decision certifies a class of historic size, with potential damages in the billions of dollars, and creates or deepens at least three circuit splits on important issues related to class certification. Wal-Mart has indicated in press statements that it is considering its options, including seeking US Supreme Court review. Absent extensions, the petition for a writ of certiorari will be due on July 26, 2010. Amicus briefs in support of the petition will be due in late August, 30 days after the petition is docketed.
In the meantime, however, businesses that are forced to defend against class-action litigation within the Ninth Circuit should expect to face repeated citations to Dukes. In response, a number of steps should be considered. First, defendants should preserve the argument that Dukes is wrongly decided to allow for potential Supreme Court review in their own cases—or to take advantage of any developments should certiorari be granted in Dukes or another case raising similar issues. Second, although the Dukes court held that a full Daubert hearing is not required to resolve challenges to class certification experts, such hearings are not foreclosed by Dukes. Accordingly, defendants should consider aggressively challenging the qualifications, methodology, and conclusions of plaintiffs’ experts and requesting that district courts hold hearings when appropriate. Third, companies that seek to demonstrate that the presence of individualized issues precludes class certification should submit as much evidence of individual differences as possible—including, for example, declarations from members of the potential class—to show that a determination of liability on the basis of common proof would be impossible. Finally, businesses should focus on the manageability and due process issues, laying out in as much detail as possible the incorrect results that can emerge from a sampling approach to liability and damages.